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updated: 7/24/2012 10:43 AM

Moody's may downgrade Penn State's credit rating

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  • Laura Lovins, a Penn State University sophomore from State College, Pa., center, reacts while listening to a television in the HUB on the Penn State University main campus in State College, Pa., as the NCAA sanctions against the Penn State University football program are announced Monday, July 23, 2012.

      Laura Lovins, a Penn State University sophomore from State College, Pa., center, reacts while listening to a television in the HUB on the Penn State University main campus in State College, Pa., as the NCAA sanctions against the Penn State University football program are announced Monday, July 23, 2012.
    Associated Press

 
Associated Press

NEW YORK -- Moody's Investors Service said it may cut its rating on Penn State's credit as the university deals with the fallout from the Jerry Sandusky child sexual-abuse case and sanctions against the school's football team.

The agency has an "Aa1" rating on Pennsylvania State University's credit. That is its second-highest possible rating. The firm said a recent report by former FBI Director Louis Freeh and sanctions levied by the NCAA could hurt student enrollment and fundraising for the university, and the school also faces uncertainty in the form of ongoing federal and state investigations.

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Penn State has about $1 billion in debt, Moody's said. A downgrade could make it more expensive for Penn State to borrow money, which would be another long-term cost in a scandal that has already cost the school immeasurably.

The announcement comes a day after the NCAA fined Penn State $60 million, banned the school from playing in postseason bowl games for four years, and stripped the team of dozens of scholarships, among other penalties. The Big Ten conference levied additional sanctions.

Earlier this month, Freeh delivered a report on the actions of Penn State leadership and its athletic department surrounding the actions of Sandusky, a former football coach who awaits sentencing after been convicted of 45 charges related to child abuse. Moody's said the report and other investigations "collectively point directly to weaknesses in the university's management and governance practices."

The firm said that until before the Freeh report and the NCAA sanctions, it did not see evidence of weakness in enrollment or fundraising.

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